#7 in our “Key Solar Concepts” series.

Solar Performance payments—also called performance-based incentives (PBIs)—are an important solar incentives in over half of the states in our great nation. The name basically tells you what they are: payments based on the performance of your system—that is, how much energy your panels produce. That energy is measured in kilowatt-hours (kWh), one thousand of which equals a megawatt-hour (MWh).

Solar Renewable Energy Credits (SRECs) – Certificates that each represent one MWh of solar energy, which can be sold to utility companies for big bucks.

Most states (33 of them to be exact) have PBI programs of one kind or another. They’re different from rebates or tax credits in that they require your system to be actually working and kicking out the kilowatts. Some PBIs are quite small, netting solar owners a couple hundred dollars a year, and some are very large, and can bring up up to $5,000 or more for the average homeowner, quickly paying back an initial investment in solar and earning the system owner a handsome return in just a few short years.

Let’s go over the most popular kinds of PBI:

Feed-in Tariffs

A feed-in tariff (FiT) is simply a payment for solar electricity. Under a FiT program, your solar panel system is attached to a separate meter and all the solar electricity is sent to the grid. You get paid the FiT price—which is typically higher than retail cost of electricity—for every kWh of electricity your panels make.

FiT programs have been very successful in other countries, specifically Germany and the United Kingdom, but haven’t been very popular in the United States. States (or cities within states) that have or had a FiT program include California, Florida, Oregon, Vermont, and Wisconsin.

One state that still has an excellent FiT program is Rhode Island, which pays solar owners $.38/kWh for their panels’ electricity—double the retail price people pay for electricity in the state. If you live in Rhode Island, connect with a solar expert near you today to find out more about how you can get solar for zero down and save thousands of dollars per year. Yowza!

The Value of Solar

One new development in the FiT world is what’s called a “Value of Solar” tariff (aka “VoS”—jeez we love our acronyms, don’t we?). It’s a way to look at all the benefits from solar and assign them a value, which is then levelized over a long period of time.

VoS recognizes that solar has a greater value than other kinds of electricity generation, because of its environmental benefits, but also because of the way it reduces demand during peak times, which in turn reduces stress on the grid and the need to book transmission for fossil fuel energy from far away. Solar makes operating a utility company easier, see, removing some of the capital investments in grid maintenance and the uncertainty of hourly power markets.

And because VoS tariffs are levelized over a long-term contract, they tend to be higher than retail rates now, which helps homeowners pay off solar more quickly, and stay steady as inflation and other factors cause electricity prices to rise over time (which helps utility companies predict what their future costs look like).

Performance Premiums

A performance premium is a payment above the net metering rate for the electricity your panels produce. Basically, your utility company needs that sweet solar power you make to meet its targets under your state’s Renewable Portfolio Standard, and they’re willing to pay you a little extra cash money to get it.

The best example of a performance premium in the U.S. right now is in Minnesota, where the state’s largest utility—Xcel Energy—will pay you an extra 8 cents/kWh for your solar power, through its Solar*Rewards Program. It’s a great way to make a little extra cash on solar, and it reduces your payback time by a year, too!

SREC Markets

This is the big Kahuna of performance payments, and really, it’s the smartest way to incentivize solar electricity. One SREC is awarded to a solar owner each time their panels generate a MWh of electricity. In most places in the U.S., a standard 5-kW home solar system would pump out about 6 MWhs in a year. The SRECs generated in this way can be sold to the utility company as “proof of generation,” which they need if they’ve got to hit solar targets under your state’s RPS solar carve-out.

Here’s how it works:

The state sez: “you utility companies need to get 500 MWhs of solar energy per year, and if you don’t, we’ll charge you $400 for every MWh you’re short!

The utility company sez: “Planning and building our own solar farms is too difficult and expensive, but we don’t want to pay those fines! Isn’t there anyone who’ll sell us their SRECs for less than $400?!?!?”

And everyone lives happily ever after, at least as long as the solar targets remain unmet or until the fines go away, which happens all the time.

It’s a little more complicated than that, but that’s the gist of it. States with solar carve-outs establish SREC markets that allow you or a third-party seller to pass your SRECs on to utility companies for prices at or near the cost of the fines for non-compliance (called “alternative compliance payments, or ACPs). Those fines change over time (read: go down or go away), so SREC prices aren’t stable for very long. The excellent people over at SRECTrade do a great job at tracking the historical prices for SRECs in states with markets.

Check out the charts they’ve got of historical SREC prices:

Pretty telling, huh? They all go down after a few years, which tends to be the trend. Luckily, places like Ohio and Maryland are beginning to push new targets for solar, so we may see new bull markets for SRECs as states get serious about solar again.

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